Pratt Engine-Delivery Miss Dims United Technologies’ Profit GainBy
Shipments of new GTF jet turbines fall short of forecast
Parent company stands by total growth targets for 2017, 2020
Pratt & Whitney fell short of its target for deliveries of a critical new jet engine last year, dulling the shine from rising fourth-quarter profit at parent company United Technologies Corp.
The manufacturer handed over 138 geared turbofans during the year, Gregory Hayes, United Technologies’ chief executive officer, said Wednesday. Pratt had been hoping to deliver 150 engines, which power planes made by Airbus Group SE and Bombardier Inc., after cutting the target from 200 earlier in the year.
“This will always be a challenge as you’re ramping up,” Hayes said on a conference call with investors and analysts. The long-term outlook for the engine remains strong and Hayes said he feels “very good” about Pratt’s plan to get on track.
The delivery stumble adds to challenges for United Technologies, which is already contending with a strong U.S. dollar and sluggish economy that are buffeting its sales of aircraft parts and building systems. The Farmington, Connecticut-based company has also faced a slowdown in its Otis elevator business in China.
The shares fell 0.8 percent to $110.75 at 3:39 p.m. in New York after falling as much as 2.5 percent, the biggest intraday slide in four months. United Technologies was also the biggest decliner on the Dow Jones Industrial Average, which rallied to a record.
Adjusted earnings in the fourth quarter rose to $1.56 a share, United Technologies said in a statement. That matched analysts’ estimates. Sales climbed 2.5 percent to $14.7 billion, in line with the average of projections compiled by Bloomberg.
Pratt boosted sales 4 percent in the fourth quarter despite the delivery shortfall. The company remains committed to its 2017 target of 350 to 400 deliveries, United Technologies Chief Financial Officer Akhil Johri said in a telephone interview.
The planemakers that use the GTF engine on new plane models were “satisfied” with the delivery levels, he said.
Deliveries have been affected by availability issues with a small number of engine components, Hayes said. The company is also addressing minor “durability issues” with the engine, including lifespan concerns related to the performance in harsh conditions, Hayes said.
While the GTF issue isn’t “out-of-control bad,” it is a “watch item” for investors, said Nicholas Heymann, an analyst with William Blair & Co. That adds to headwinds including the strong U.S. dollar, he said.
Orders in the climate-control business rose for the first time all year as net sales climbed 3.1 percent from a year earlier, Johri said. “That is an encouraging sign going into ’17, which gives us more confidence and makes us feel comfortable with our guidance.”
Hayes was thrust into the national spotlight in late 2016 when Donald Trump, after he was elected president, criticized United Technologies’ Carrier climate-control division over plans to relocate manufacturing work to Mexico. Hayes appeared last month with Trump at a widely televised event to announce that some of the jobs would remain at a plant in Indiana.
The CEO said Wednesday that the prospect of a corporate tax overhaul under Trump represents “a huge opportunity.”
While there are “a lot of challenges ahead of us” in 2017, “we’ve never been better positioned for growth,” Hayes said. The company reaffirmed its forecast of 2017 sales in the range of $57.5 billion to $59 billion and profit of $6.30 to $6.60 a share.
Hayes, who took over as CEO in late 2014, has reorganized the company and made a series of management changes, including appointing new heads of the elevator and climate divisions. Hayes also has reshaped the portfolio through deal making, including the $9 billion sale of the Sikorsky helicopter unit to Lockheed Martin Corp.
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